A scathing Senate report says US contractors in Afghanistan have hired warlords, "thugs," Taliban commanders and even Iranian spies to provide security at vulnerable US military outposts in Afghanistan.

The report, published by the Senate Armed Services Committee, says lax oversight and "systemic failures" have led to "grave risks' to US forces, including instances where contractors have employed Afghan subcontractors who were "linked to murder, kidnapping and bribery, as well as Taliban and anti-coalition activities."

The chairman of the committee, Sen. Carl Levin, D.-Michigan, said the report was evidence that the US needs to reduce its reliance on contractors.

"We need to shut off the spigot of US dollars flowing into the pockets of warlords and power brokers who act contrary to our interests," said Sen. Levin.

The committee reviewed roughly 125 unclassified Department of Defense security contracts between 2007 and 2009, and found that there are some 26,000 private security contractors operating in Afghanistan, the majority of whom are Afghan nationals. The review found "systemic failures" of the military oversight for contracts, including the hiring of what Levin called "many too many" security contractors who had been improperly vetted, improperly trained or were not provided weapons.

In some cases, companies were awarded contracts though they had no ability to provide the services needed. In those cases, companies then quickly hired local nationals without proper vetting or security checks. The chaotic system left US facilities and personnel vulnerable to attack. The report found that some Afghan security guards simply walked off their posts at remote forward operating bases.

Contractor Allegedly Hired Iranian Spies

In two specific cases, the report charges that ArmorGroup and a contracting company EODT, hired private security guards who worked for Taliban-connected warlords. According to the report, a US military official initially recommended that ArmorGroup hire the warlord to help provide guards to fulfill a contract. After US military officials at a Western Afghanistan airbase discovered that Afghan security guards were passing sensitive security and troop information to the Taliban, the guards were fired.

Within days, the fired guards were hired by a second contractor to supply security at a second US facility just a few miles north, the report claims. EODT, the report alleges, had two Afghans on their payroll who were known to US military intelligence as Iranian agents.

The report describes a chaotic warzone where security contracts bordered on the absurd. In some instances, Senate staffers said on background, guards were not given weapons or were provided with defective weapons. Some Afghan contractors assigned to Afghan police training centers were paid more than the recruits, resulting in the police trainees quitting and going to work as private security for the base. In one case, a Marine lance corporal was killed by an Afghan insurgent who was employed as a private security contractor on a US military contract.

The report did not make any recommendations to the Pentagon about how to curtail the abuses and violations discovered in the investigation, but Sen. Levin was adamant that the US military has too many private security contractors in Afghanistan.

"Our reliance on private security contractors in Afghanistan has too often empowered local warlords and powerbrokers who operate outside the Afghan government's control and act against coalition interests," Levin said. "The situation threatens the security of our troops and puts the success of our mission at risk."

ArmorGroup did not immediately respond to a request for comment.

EODT noted in a statement to ABC News that while it had only had the chance to preliminarily review the Senate report, it had cooperated fully in the investigation, and that its contract required EODT "to utilize Afghan personnel and specifically those from the area surrounding the contract location." EODT also said local leaders had provided help in hiring Afghans, and that those leaders "were persons made known to EODT by the U.S. military or were commonly known leaders within that area."

"While the [report] may present certain criticisms of EODT's hiring practices," said the statement, "EODT has never been advised by the U.S. military that problems of this nature exist. However, just as EODT has cooperated fully with the [Senate Armed Services Committee] investigation, EODT stands ready to engage the U.S. military or other stakeholders about these issues in order to improve our internal processes and contract performance."